Business

Meg Whitman says 'You can feel the turnaround taking place at HP' (but not at Dell)

meg whitman hp

Hewlett-Packard chief executive Meg Whitman said that “you can feel the turnaround taking place at HP” in the company’s earnings call today. She touted that the company hit its earnings per share target, but she ignored that the company’s revenue fell short in her celebratory comments.

But in a conference call with analysts, Whitman took a swipe at Dell, which is amid a struggle to go private under founder Michael Dell. After hours, HP’s stock is up 13 percent on the stock market, at $24.09 a share.

“You saw a competitor, Dell, completely crater earnings,” Whitman said in response to a question. “Maybe that is what you do when you are going private. We are setting up the company for the long term.”

She implied that Dell did that on purpose, since Michael Dell is motivated to repurchase shares in the company as cheaply as possible, and deliberately lowering earnings is a good way to get the share prices to fall. Dell spokesman David Frink said, “We won’t have any comment on her remarks. We’re confident in our strategy, growing our enterprise solutions business and our share in the important x86 server business.”

Whitman is probably more than a little angry at Dell because it and other PC makers evidently competed aggressively on price at the low-end of the PC business, stealing market share away from HP, which saw its consumer PC unit sales fall 29 percent in the second fiscal quarter ended April 30. HP hit its earnings targets, but it fell short on revenue, reporting earnings per share of 87 cents on revenue of $27.6 billion today.

Whitman said she could see the turnaround taking place based on conversations with employees, customers, and partners. But she reiterated that the turnaround is a multiyear journey.

While it isn’t as cool as Apple and it doesn’t make games like Microsoft, HP is a critical piece of the electronics industry, as it straddles both the consumer and enterprise markets across a bunch of product lines. The company has $120 billion in annual revenue (the biggest in the industry by that measure) and more than 330,000 employees. It has made 70 acquisitions in the past 15 years, but its stock price has been hurting lately.

“I must say I am encouraged with where we are,” Whitman said.

She said HP is investing in innovation, bringing cost in line with revenue, improving profits, lowering its debt, optimizing cash flow, and exceeding financial performance. In the call, Whitman said the balancing act was tough when it comes to taking market share or growing profits. At the low end of the PC market, HP lost share and gave up some business rather than lose money on deals. She said the team is evaluating what it can offer at the low end.

She said HP was getting better at electronic commerce, making its e-ordering portal more streamlined in the quarter and reducing cycle time for quotes up to 20 percent in Asia.

Meanwhile, she said she was cautious about guidance for the second half of the year, noting “macroeconomic headwinds” as Europe and China slow down economically. In printers, Whitman said HP was doing well as it moves to high-end printer and ink sales. She said HP gained strength with products like a new OfficePro printer, high-value ink, and multifunction printers. She said HP will roll out a subscription-based service for ordering ink in the home.

Whitman didn’t dwell on HP’s controversial $10 billion acquisition of Autonomy, which is the subject of litigation. She said that the division was starting to generate revenues thanks to turnaround efforts.

But she did say that the $1.6 billion 3Par acquisition is paying off nicely for the storage company, with a revenue run rate above $1 billion. HP launched its Moonshot server at the “hyperscale” server market. The server is 89 percent more energy efficient than HP’s Proliant servers. It uses less 80 percent space, and reduces complexity by 97 percent while costing 77 percent less. That product will take time to grow it sales, Whitman said. HP’s switching revenue also grew in the quarter while its largest competitor declined, Whitman said.

HP reduced its debt during the quarter. Personal systems (PC) revenue was down 20 percent from a year ago, with a 3.2 percent operating margin. Commercial PC revenue was down 14 percent, and consumer revneue was down 29 percent. Total unit sales were down 21 percent, while desktops were down 18 percent and notebooks were down 24 percent. HP is poised like other PC makers to introduce new machines based on Intel’s latest microprocessors, code-named Haswell. Whitman said HP had to do a better job managing the transition from the technologies that powered the past to those that will power the future.

HP has been dealing with a couple of negative trends. The PC market has slowed down because of rising tablet sales. And it has also had to deal with a downward shift in printing habits as the growing use and accessibility of the Internet makes paper less necessary. HP’s financial services business has been growing, but most of the other parts have been weak. On top of that, HP hasn’t been participating in the mobile market at all. She said that signs of interest in HP’s $169 Chromebook device are encouraging.

Whitman said HP saw a slowdown in sales of industry standard (Intel) servers. HP chief financial officer Cathie Lesjak said that Itanium server sales were particularly weak.


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